Jobless aid cut as high unemployment reigns

RuthMantell

WASHINGTON (MarketWatch) — Despite the weak employment environment, six states so far this year have approved cutting jobless benefits to less than the 26-week duration that had prevailed for decades across the nation.

Until the recently-approved cuts, states have typically offered 26 weeks of benefits, with the exception of Montana, which offers 28 weeks, and Massachusetts, which offers 30 weeks. But tough financial problems are motivating states to look for savings.

In Sweden, men must take two months' paternity leave to get generous
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Earlier this year, Florida approved reducing the maximum-benefits duration to a range of 12 to 23 weeks, effective Jan. 1, amounting to some of the “deepest and most sweeping cuts,” according to a recently released report from the National Employment Law Project, a New York-based advocacy group. See NELP report. There will also be a reduction in employer taxes, among other changes to the state’s unemployment-compensation program.

“This new law will enhance the unemployment-compensation program’s efficiency for claimants, businesses and the state,” said Cynthia Lorenzo, director of Florida’s Agency for Workforce Innovation, in a statement. “Reform measures included in this legislation are projected to save our state more than $100 million annually, easing the tax burden on employers to help them expand and create jobs.”

Other states that have approved reduced benefits are Michigan, Missouri, and South Carolina, which have cut their programs to 20 weeks. Arkansas and Illinois have cut the duration to 25 weeks.

In addition to benefits from state systems, jobless workers can qualify for federal benefits. The duration of these federal benefits is based on the duration of state benefits. Therefore, shorter state benefits also mean shorter federal benefits.

The cuts come as the nation continues to face steep unemployment, with a jobless rate of 9.1% in July. In June, the unemployment rate reached 10.6% in Florida, 10.5% in Michigan, 10.5% in South Carolina, 9.2% in Illinois, 8.8% in Missouri and 8.1% in Arkansas.

Payback time

The recession and high unemployment have seen hefty state payments for jobless benefits, leading to “large outstanding federal loans in many states,” according to the Congressional Research Service.

“While states faced record claim-filing over the past three years, it became clear by mid-2009 that the majority had neglected to put away enough reserves in their trust funds during periods of healthy economic growth to meet the spike in demand for benefits brought on by the Great Recession and slow jobs growth thereafter,” according to NELP.

According to NELP, 30 states are borrowing $40 billion from the federal government to continue paying benefits to workers.

“The interest payments coming due for states...mean that unless there is effective federal intervention, the national solvency crisis will continue to fuel a legislative climate in the states that will erode years of overall positive changes in the UI program,” according to NELP.

Cuts to jobless benefits are one more sign of hard times for state and local governments. The Labor Department’s July payrolls report released Friday shows that, while private payrolls rose 154,000, government payrolls fell 37,000. In July state government payrolls fell 23,000 and local government payrolls fell 16,000 — losses that eclipse a gain of 2,000 federal jobs. Read more about payrolls.

How much is enough?

There’s disagreement over the right duration for unemployment-insurance benefits.

While unemployment benefits can help workers find the right employment match — it’s hoped that workers can find work that makes the most of their skill set — there’s concern that overly generous payments discourage some from taking a position.

Still, with high persistently high unemployment rates and few jobs — there are almost five unemployed workers for each opening — it’s clear that the employment environment remains weak. The median duration of unemployment was about 21 weeks in July, while the average duration hit just over 40 weeks.

For decades most states have typically offered at least 26 weeks of benefits. In the early 1930s, Wisconsin became the first state to pass an unemployment-compensation law, and by 1960 most states offered at least 26 weeks of benefits.

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